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The US$1.5bn loan reportedly being finalised by the Nigerian National Petroleum Corporation (NNPC) is unlikely to go ahead, according to Nigerian sources.

They tell GTR that despite having been signed, the loan is facing too much criticism to go ahead, and it is likely that it will be “thrown away”.

According to Reuters, quoting banking and oil trading sources, the loan is to be provided by many Nigerian and international banks, arranged by Standard Chartered, and paid back over five and a half years, with 15,000 barrels per day of NNPC’s oil production as collateral.

Local news reports quoting NNPC spokesperson Tumini Green have said the deal has not yet been signed, but is being finalised to help the state-owned firm repay its debt for the import of refined oil products – an estimated US$3.5bn.

The announcement has created controversy amongst Nigerians, who are criticising the lack of transparency on the country’s oil resources management, and the NNPC is now facing a number of court cases for allegedly not following due procedures. As a state-owned entity, the NNPC is meant to ask for approval from the National Assembly before tapping the syndicated loan market, which apparently did not happen, despite rumours of President Goodluck Jonathan’s green light.

DLA Piper partner Alex Monk and associate James Willcock explain to GTR why the NNPC found the loan necessary.
“Because the NNPC is a big entity, the government is concerned about its international credit rating. Assuming that the deal is signed, consolidating a percentage of the overall debt into a proper loan structure would assist it in terms of appearing in control of its obligations towards third parties,” says Monk.

However, they point out that more needs to be done to help the country’s oil sector in a more sustainable way. Willcock says: “[The loan] is a solution to an immediate problem but there are longer-term issues in the Nigerian oil sector that need addressing, particularly the need to import refined products despite the abundance of crude oil.”

Despite being Africa’s largest crude oil producer, Nigeria’s lack of refining facilities means it has to import the majority of its petroleum needs. Imported refined products are subsidized by the government to make petrol affordable on the local market, but according to Willcock, this is “a drain on government and parastatal resources”, another contributing factor to the NNPC’s financial situation. There was an attempt to withdraw those subsidies last year but that was ultimately unsuccessful because of popular resistance.

“Some of the criticism of the financing has been around the idea that instead of financing the NNPC, perhaps what should be considered is the development of refining capacity in Nigeria so that the resources they have can be refined and used within the country – a more sustainable fix rather than short-term financing of the debt that the NNPC is currently unable to pay,” adds Willcock.

But Monk believes that the loan is a necessity, if only to improve the NNPC’s credit rating. “Yes it doesn’t provide a long-term solution in terms of financing the refining structure the country needs, but it is an interim or a necessary component of a large state business,” he says.

Some reports have linked the troubled financial situation of the NNPC to the delays in passing the country’s Petroleum Industry Bill (PIB), which involves a major restructuring of the Nigerian oil industry. Monk and Willcock believe that it is not the main reason prompting the need for the syndicated loan, but that it is a contributing factor.

“The PIB in its current form contemplates the reorganisation of the various institutions involved in the oil industry, and the NNPC has been criticised for not managing particularly well the mandate that it has,” says Willcock.